Shares in Telkom continued their sharp downward slide on Thursday, flirting with levels last seen more than two years ago, as investors digested the group’s recent interim results and its complicated attempt to buy debt-saddled mobile operator Cell C.
The shares closed down 10.4% at R46.35 in Johannesburg after touching an intraday low of R45.25 (a 12.5% decline). They have now lost more than half their value since their peak of R100/share in June, giving Telkom a market capitalisation of just R23-billion.
Since the start of the year, Telkom’s share price has fallen by 17% (to Wednesday’s close). Despite a strong run-up between January and June when it far outperformed rivals Vodacom and MTN, it is now lagging behind the country’s two biggest mobile providers in the year to date — Vodacom is up 2% while MTN is up 11% (the latter rising, at least in part, on the stronger performance of its Nigerian business and the resolution of some of its regulatory headaches there).
Telkom’s results for the six months to end-September 2019 showed a slowdown in net subscriber additions in its mobile business and an accelerating decline in the number of fixed lines in service as it began decommissioning its legacy copper network and as consumers moved to faster fixed-wireless solutions based on 4G/LTE technology (from both Telkom itself and competitor providers).
The number of fixed lines in service fell below two million for the first time, a slump of 23% compared to September 2018, while the number of fixed broadband subscribers (including fibre) fell by 19.8% to 781 000.
Though Telkom continues to add fibre customers — and the “attachment rate”, or percentage of subscribers who take up the service where it’s available, is now the highest in the market at 42.6% — this was far from enough to stop the haemorrhaging of its fixed-line base.
Less capex on fibre
It has also cut capital expenditure in its fibre-to-the-home network, favouring investment to fund the (slowing but still decent) growth in mobile. However, its balance sheet weakened in the six months to September as it raised more debt to fund capex.
Its plan to by Cell C, meanwhile, has been complicated by the signing of an expanded roaming agreement between Cell C and MTN South Africa. Some analysts have suggested Telkom may have to pay more for Cell C following the conclusion of the MTN deal — assuming the deal gets the nod from regulators, which is far from a given.
Telkom said its potential acquisition of Cell C would be “subject to Cell C completing a financial restructuring to ensure that its gearing levels are reduced to a sustainable level as specified by Telkom and commercial contractual relationships are renegotiated to terms acceptable to Telkom”. — (c) 2019 NewsCentral Media